Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you, Brandy. I appreciate the invite.
Brandy Auterson-Hurst:
So, David, what’s something investors often overlook when it comes to stock market risk?
David Nelson:
Well, risk number one is I think we have a tendency as far as our industry of glossing over things. And I think one of the most underappreciated risks is basically looking at drawdowns, and I brought along a chart today to illustrate as far as the drawdown concept.
Basically what we’re talking about here is where you look at the previous high and if the market is moving down, the bottom line, that’s defined as a drawdown. And so our chart that we brought today basically illustrates going back to the ’50s, and what we’re looking at here is the ’50s. You had a couple of little drawdowns and what have you where things dropped 10, 15, 20%. But we look at the ’70s, we find that there’s some pretty significant drawdowns north of 40%, almost 50% during that period.
Fast-forward to dot-com bubble, and what we see there is, and again, we’re talking about large company stock indexes here, and the drawdowns were 50%, give or take. Fast-forward to ’07, ’08, ’09, we had another one. And then in recent times, 2020, we had another drawdown.
These drawdowns are tough to recover from. That’s why it’s so important for people to try to minimize those drawdowns.
Brandy Auterson-Hurst:
Okay, so who should be most concerned about this?
David Nelson:
Well, I think if you’re close to retirement, clearly this has got to be on the radar as far as something that you’re aware of. You take an individual that’s basically drawing money as far as from their account, and we have a drawdown, those individuals, that’s going to be very difficult for them to overcome that in a short period of time.
Brandy Auterson-Hurst:
All right, David, as always, thanks for joining us.
David Nelson:
Thank you.
Brandy Auterson-Hurst:
If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.